The Federal Reserve System (also known as the Fed) is a government organization that encompasses several private U.S. banks. The Federal Reserve System is our central banking system. It is composed of the Federal Reserve Board of Governors, Federal Open Market Committee, 12 Regional Federal Reserve Banks, private banks and various advisory boards from different market sectors. Some key objectives performed by the Federal Reserve System are maintaining maximum employment, provide stability of financial institutions, regulate banking institutions and moderate long term interest rates. The monetary policy also established zero interest rate policy to establish maximum growth to drive the economy. Typically, the Federal Reserve would decrease short term interest rates to increase spending and lending but this method is no longer applicable. Through fiscal policy, the Fed introduced a quantitative easing program to stimulate the economy.
Federal Reserve Chairman Ben Bernanke believes the new quantitative easing program or QE3 will help stimulate the economy. This new program will last until mid-2015. QE3 is set to purchase $45 billion in long term securities each month, paid by sales of short term securities. The central bank is aiming to keep long term interest rates low, increase borrowing, spending and hiring. However, skeptics disagree that the quantitative easing programs are effective. They believe this third round of purchases will send the U.S. into inflation. Officials worried the market would become dependent on the bond buying programs. The Feds conducted research to determine the market capacity of QE3. They concluded the Feds could carry a large program for a maximum of two years before affecting the market.
Ben Bernanke won over skeptics by agreeing to reassess the program before proceeding with a bigger program in 2013. They will reassess the program based on inflation rates and increased job performance.
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